# C_2012335EN.01001601.xml

| 1.11.2012 | EN | Official Journal of the European Union | C 335/16 |
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1.11.2012

EN

Official Journal of the European Union

C 335/16

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Executive summary of the EDPS Opinion of 14 June 2012 on the proposals for a regulation on European venture capital funds and for a regulation on European social entrepreneurship funds

(The full text of this Opinion can be found in English, French and German on the EDPS website: http://www.edps.europa.eu)

2012/C 335/09

Introduction

Introduction

Consultation of the EDPS

Consultation of the EDPS

| 1. | On 7 December 2011, the Commission adopted a proposal for a regulation on European venture capital funds (1) (hereinafter ‘the proposed VCF regulation’). On the same date, the Commission adopted a proposal for a regulation on social entrepreneurship funds (2) (hereinafter ‘the proposed SEF regulation’). These proposals were sent to the EDPS for consultation on 12 December 2011. |
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1.

On 7 December 2011, the Commission adopted a proposal for a regulation on European venture capital funds (1) (hereinafter ‘the proposed VCF regulation’). On the same date, the Commission adopted a proposal for a regulation on social entrepreneurship funds (2) (hereinafter ‘the proposed SEF regulation’). These proposals were sent to the EDPS for consultation on 12 December 2011.

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| 2. | The EDPS welcomes the fact that he is consulted by the Commission and recommends that references to this Opinion are included in the preambles of the proposed regulations. |
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2.

The EDPS welcomes the fact that he is consulted by the Commission and recommends that references to this Opinion are included in the preambles of the proposed regulations.

| 3. | The implementation and application of the legal framework for venture capital funds and social entrepreneurship funds may in certain cases affect the rights of individuals relating to the processing of their personal data. The proposed regulations contain provisions which may have data protection implications for the individuals concerned, such as the applicability of data protection legislation, cross border exchanges of information, investigatory powers of the competent authorities and databases of fund managers. |
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3.

The implementation and application of the legal framework for venture capital funds and social entrepreneurship funds may in certain cases affect the rights of individuals relating to the processing of their personal data. The proposed regulations contain provisions which may have data protection implications for the individuals concerned, such as the applicability of data protection legislation, cross border exchanges of information, investigatory powers of the competent authorities and databases of fund managers.

| 4. | There are comparable provisions to the ones referred to in this Opinion in several pending and possible future proposals, such as those discussed in the EDPS Opinions on the legislative package on the revision of the banking legislation, credit rating agencies, markets in financial instruments (MIFID/MIFIR) and market abuse (3). Therefore, the EDPS recommends reading this Opinion in close conjunction with his Opinions of 10 February 2012 on the abovementioned initiatives. |
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4.

There are comparable provisions to the ones referred to in this Opinion in several pending and possible future proposals, such as those discussed in the EDPS Opinions on the legislative package on the revision of the banking legislation, credit rating agencies, markets in financial instruments (MIFID/MIFIR) and market abuse (3). Therefore, the EDPS recommends reading this Opinion in close conjunction with his Opinions of 10 February 2012 on the abovementioned initiatives.

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Objectives and scope of the proposal

Objectives and scope of the proposal

| 5. | The proposed regulations aim to solve different problems with both types of funds. |
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5.

The proposed regulations aim to solve different problems with both types of funds.

| 6. | Although venture capital funds focus on providing equity finance for SME's, the European venture capital industry is fragmented and dispersed. This fragmentation and dispersion leads to a statistically significant investor's reluctance to invest in venture capital funds. Regulatory fragmentation also impedes specialised venture capital funds from raising significant amount of capital from abroad. Potential investor's current preference is to prefer private equity over venture capital investments. This is negative for Europe's global competitiveness. The proposed regulation on venture capital funds aims at addressing these problems. |
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6.

Although venture capital funds focus on providing equity finance for SME's, the European venture capital industry is fragmented and dispersed. This fragmentation and dispersion leads to a statistically significant investor's reluctance to invest in venture capital funds. Regulatory fragmentation also impedes specialised venture capital funds from raising significant amount of capital from abroad. Potential investor's current preference is to prefer private equity over venture capital investments. This is negative for Europe's global competitiveness. The proposed regulation on venture capital funds aims at addressing these problems.

| 7. | The range of eligible financing tools proposed in the regulation on European social entrepreneurship funds goes beyond equity finance. Social undertakings also have recourse to other forms of finance, combining public and private sector financing, debt instruments or small loans. The proposed rules on social entrepreneurship funds therefore provide for a larger range of qualifying investment tools that are available for venture capital funds. |
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7.

The range of eligible financing tools proposed in the regulation on European social entrepreneurship funds goes beyond equity finance. Social undertakings also have recourse to other forms of finance, combining public and private sector financing, debt instruments or small loans. The proposed rules on social entrepreneurship funds therefore provide for a larger range of qualifying investment tools that are available for venture capital funds.

| 8. | In addition, the transparency issues raised by investments into social businesses are distinct from the general reporting obligations that are provided in the area of venture capital: investments into social entrepreneurship target a form of ‘social return’ or positive social impact. The proposed rules contain special sections that focus on information pertaining to social impacts, their measurement and the strategies employed to foster their achievement. |
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8.

In addition, the transparency issues raised by investments into social businesses are distinct from the general reporting obligations that are provided in the area of venture capital: investments into social entrepreneurship target a form of ‘social return’ or positive social impact. The proposed rules contain special sections that focus on information pertaining to social impacts, their measurement and the strategies employed to foster their achievement.

| 9. | The proposed regulations on European venture capital funds and on European social entrepreneurship funds are envisaged to complement each other. Both proposals, if adopted, will coexist as autonomous legal acts in mutual independence. |
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9.

The proposed regulations on European venture capital funds and on European social entrepreneurship funds are envisaged to complement each other. Both proposals, if adopted, will coexist as autonomous legal acts in mutual independence.

Main EDPS comment

Main EDPS comment

| 10. | The EDPS considers that — with regard to data protection issues — the proposed regulations are too general. It is unclear in some cases whether processing of personal data will take place under certain provisions of the proposed regulations, for example regarding exchanges of information, investigatory powers of the competent authorities and establishment of ESMA databases. |
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10.

The EDPS considers that — with regard to data protection issues — the proposed regulations are too general. It is unclear in some cases whether processing of personal data will take place under certain provisions of the proposed regulations, for example regarding exchanges of information, investigatory powers of the competent authorities and establishment of ESMA databases.

Conclusions

Conclusions

| 32. | The EDPS recommends:






  — | that references to this Opinion are included in the preambles of the proposed regulations, |
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32.

The EDPS recommends:

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that references to this Opinion are included in the preambles of the proposed regulations,

| — | inserting provisions in the proposed regulations emphasising the full applicability of existing data protection legislation. The EDPS also suggests that the reference to Directive 95/46/EC be clarified by specifying that the provisions will apply in accordance with the national rules which implement Directive 95/46/EC, |
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inserting provisions in the proposed regulations emphasising the full applicability of existing data protection legislation. The EDPS also suggests that the reference to Directive 95/46/EC be clarified by specifying that the provisions will apply in accordance with the national rules which implement Directive 95/46/EC,

| — | specifying the kind of personal information that can be processed and transferred under the proposed regulations, defining the purposes for which personal data can be processed and transferred by the competent authorities concerned and ESMA and fix a proportionate data retention period for the above processing or at least introduce precise criteria for its establishment, |
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specifying the kind of personal information that can be processed and transferred under the proposed regulations, defining the purposes for which personal data can be processed and transferred by the competent authorities concerned and ESMA and fix a proportionate data retention period for the above processing or at least introduce precise criteria for its establishment,

| — | limiting competent authorities’ access to documents and information to specifically identified and serious violations of the proposed regulations and in cases where a reasonable suspicion (which should be supported by concrete initial evidence) exists that a breach has been committed, |
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limiting competent authorities’ access to documents and information to specifically identified and serious violations of the proposed regulations and in cases where a reasonable suspicion (which should be supported by concrete initial evidence) exists that a breach has been committed,

| — | introducing a requirement for competent authorities to request documents and information by formal decision, specifying the legal basis and the purpose of the request and what information is required, the time limit within which the information is to be provided as well as the right of the addressee to have the decision reviewed by a court of law, |
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introducing a requirement for competent authorities to request documents and information by formal decision, specifying the legal basis and the purpose of the request and what information is required, the time limit within which the information is to be provided as well as the right of the addressee to have the decision reviewed by a court of law,

| — | clarifying the legal basis of the fund manager databases by introducing more detailed provisions in the proposed regulations. Such provisions must comply with the requirements of Regulation (EC) No 45/2001. In particular, the provision establishing the database must (i) identify the purpose of the processing operations and establish which are the compatible uses; (ii) identify which entities (ESMA, competent authorities, Commission) will have access to which data stored in the database and will have the possibility to modify the data; (iii) ensure the right of access and appropriate information for all the data subjects whose personal data may be stored and exchanged; (iv) define and limit the retention period for the personal data to the minimum necessary for the performance of such purpose, |
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clarifying the legal basis of the fund manager databases by introducing more detailed provisions in the proposed regulations. Such provisions must comply with the requirements of Regulation (EC) No 45/2001. In particular, the provision establishing the database must (i) identify the purpose of the processing operations and establish which are the compatible uses; (ii) identify which entities (ESMA, competent authorities, Commission) will have access to which data stored in the database and will have the possibility to modify the data; (iii) ensure the right of access and appropriate information for all the data subjects whose personal data may be stored and exchanged; (iv) define and limit the retention period for the personal data to the minimum necessary for the performance of such purpose,

| — | that, as the proposed regulations are too general in cases of cross border exchanges of information, investigatory powers of the competent authorities and the establishment of ESMA databases of fund managers, essential elements of the processing of personal data should not be left to be decided by delegated acts, but included in the relevant substantive articles of the proposed regulations, |
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that, as the proposed regulations are too general in cases of cross border exchanges of information, investigatory powers of the competent authorities and the establishment of ESMA databases of fund managers, essential elements of the processing of personal data should not be left to be decided by delegated acts, but included in the relevant substantive articles of the proposed regulations,

| — | including references in the proposed regulations to the need to consult the EDPS in so far as the delegated and implementing acts concern the processing of personal data. |
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including references in the proposed regulations to the need to consult the EDPS in so far as the delegated and implementing acts concern the processing of personal data.

Done at Brussels, 14 June 2012.

Giovanni BUTTARELLI

Assistant European Data Protection Supervisor

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(1)  COM(2011) 860.

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(2)  COM(2011) 862.

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(3)  EDPS Opinions of 10 February 2012, available at: http://www.edps.europa.eu

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